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Freeport, Newmont to finalize smelter deal

Government officials will meet senior executives from PT Freeport Indonesia and PT Newmont Nusa Tenggara (NNT) next week to discuss details of their side letters that will make it possible for the mining giants to export their products.

Freeport has confirmed that Richard Adkerson, CEO of Freeport-McMoran Copper & Gold, will attend the negotiations.

The government will negotiate with both companies on the details following a meeting on Wednesday where Freeport and Newmont stated their commitment to building a smelter.

“Freeport and Newmont have agreed to build a smelter and they have agreed to deposit certain funds for that purpose as well. It’s US$114.8 million for Freeport and $25 million for NNT,” Coordinating Economic Minister Chairul Tanjung said late on Wednesday.

The Ministry held a lengthy discussion with the two companies earlier that day, at a meeting also attended by Energy and Mineral Resources Minister Jero Wacik, Finance Minister Chatib Basri, Industry Minister MS Hidayat and Investment Coordinating Board (BKPM) chairman Mahendra Siregar.

Freeport was represented by Rozik Boedioro Soetjipto, its president director, while NNT was represented by president director Martiono Hadianto.

“We hope to complete the negotiation of the contents of the side letters next week. We have received assurances as well that Richard Adkerson will come to Indonesia to join the negotiations,” Chairul said.

Contents of the side letters will include details on export taxes that Freeport and Newmont will have to pay to export their semi-finished products before the smelter is completed.

The government decided to relax the mineral-ore export ban by introducing progressive export taxes, following threats and complaints from mining companies that claimed the ban would cause substantial losses.

Initially, under the mineral-ore export ban, which is stipulated in the 2009 Mining Law, only finished products could be exported.

Following the complaints from the miners, the government instigated a progressive tax regime to allow exports of semi-finished products, such as concentrates, while the miners constructed their smelters.

The tax range has been set at between 20 percent and 60 percent, depending on the type of minerals and concentrate level, and to be applied from 2014 to 2016.

Freeport and NNT, however, have previously asked that the taxes be reduced.

During Wednesday’s press conference, Chairul said he would bring “these new developments” on the matter to a limited Cabinet meeting next week.

He also confirmed Newmont’s plan to collaborate with Freeport and state-owned miner PT Aneka Tambang (Antam) in the smelter construction.

Meanwhile, according to Jero, with an annual capacity of 1.6 million tons of copper concentrate, the $2.3 billion smelter that Freeport and Antam have agreed to build will be big enough to process Newmont’s production as well.

When asked why Antam had not been required to deposit funds as Freeport and Newmont had, Jero said, “Antam is our own company.”

In the meantime, the government is expecting 17 more mineral miners to sign mining-renegotiation contracts next month.

Jero said that all 17 firms had agreed to the six points laid out in the amended contracts, such as mining area size, amount of royalties and utilization of local goods.

He declined to reveal their identities, adding that the process was ongoing.

If realized, the 17 companies will follow in the footsteps of 25 firms that already signed similar contracts in March.

Last year, the government also concluded renegotiations with five companies, while in 2012, it completed the process with two companies.